Question

Staind, Inc., has 8 percent coupon bonds on the market that have 5 years left to maturity. The bonds make annual payments. If the YTM on these bonds is 11 percent, what is the current bond price? rev:

$889.12

$933.58

$1,030.00

$844.67

$1,123.78

Answer 1

	CALCULATION OF THE PRESENT VALUE OF THE BOND
	Step 1 : Calculation of Annual Coupon Payments
	Par value of the bond issued is   =			$                   1,000
	Annual Coupon %			8.00%
	Annual Coupon Amount			$                         80
	Step 2: Calculate number of years to Maturity
	Number of years to maturity = 5 years
	Step 3 : Yield to Maturity = 11%, So discount rate = 11%
	PVF = 1 / Discount rate = 1/ 1.11
	Result of above will again divide by 1.11 , repeat this till last period
	Pending Life of the bond is 5 years
	CALCULATION OF CURRENT MARKET PRICE OF THE BOND OR PURCHASE PRICE
	Years	Interest	Amount	PVF @ 11%	PresentValue
	1	Interest	$                          80	0.9009	$               72.07
	2	Interest	$                          80	0.8116	$               64.93
	3	Interest	$                          80	0.7312	$               58.50
	4	Interest	$                          80	0.6587	$               52.70
	5	Interest	$                          80	0.5935	$               47.48
	5	Bond Value	$                    1,000	0.5935	$             593.45
		Total			$             889.12
		Current price of the Bond =		$                889.12
		Answer = Option A = $ 889.12